With Obamacare entering its sixth year of existence, employers are starting to receive notices from IRS that the information submitted to the agency to confirm insurance coverage for certain employees does not match the records under the Social Security Administration ("SSA"). And unlike mis-match letters from the SSA, the IRS can impose serious penalties if certain steps are not taken to address the discrepancy. These penalties were recently increased to $250 per return, to a maximum of $3,000,000 per year. There is a lower cap (only $1,000,000) for smaller entities with gross receipts of not more than $5,000,000.
IRS regulations provide specific procedures that employers must follow to establish that it has taken reasonable steps to obtain a TIN or social security number from each employee. By following and documenting these steps, an employer can demonstrate that it has acted in a responsible manner so as to avoid IRS penalties in the event that it has the incorrect information for an employee. This includes making the initial solicitation of the employee's social security number upon hire (generally on the W-2), followed by two annual solicitations (the second solicitation is made at a reasonable time thereafter and the third solicitation is made by December 31 of the year following the initial solicitation) if the individual's TIN or social security number still has not been secured or a mis-match has been identified.
IRS has stated that if an employer receives additional notices based on missing or incorrect TIN or social security number for the employee after making the two annual solicitations, no further solicitations are necessary and that the employer's initial and two annual solicitations demonstrate that it acted in a responsible manner. IRS publications also state that an employer is not required to solicit a TIN or social security number from an individual whose coverage has terminated and stress that employers should not use a IRS mis-match notice alone as grounds to terminate the employee.
However, employers are rightfully concerned that these IRS notices will trigger an obligation to take reasonable steps to verify and correct the information provided by the employee or face immigration related penalties. These penalties were also recently increased so now paperwork violations on the Form I-9 range from $216 to $2,156 per violation. Penalties for the first offense of employing unauthorized workers range from $539 to $4,313 per violation. At the same time, employers must be careful not to discriminate against an employee based solely on the receipt of an IRS mis-match notice. In the context of Social Security mis-match letters, the Office of Special Counsel ("OSC") has noted that the mere receipt of a "no-match" notice does not, standing alone, constitute "constructive knowledge" on the part of an employer that the referenced employee is not work authorized. OSC warns employers that taking action against an employee based on nothing more substantial than a mismatch letter may, in fact, violate the law.
If you have any questions regarding IRS mis-match notices under Obamacare or need assistance in creating a plan to respond, please contact Jim Wimberly (jww@wimlaw.com), Jim Hughes (jlh@wimlaw.com) or Ray Perez (rp@wimlaw.com). Wimberly & Lawson also offers Form I-9 Employment Eligibility Verification compliance fixed fee audits. Please contact Wimberly & Lawson if interested in scheduling one of these or other available audits.
